Thursday, December 13, 2007

One of the difficulties of writing a blog is that sometimes you don't know where to start. You know what you want to say in the main body of the post, and you might have a snappy line with which to conclude.....but you just can't come up with a "leader" as they say in the world of journalism. Macro Man is suffering from a bit of fatigue today, and cannot think of an opening gambit. So there; he can't come up with a clever opening line, so let's proceed directly to the main body of the post.

While the difficulties facing the United States are by now well-known (and, some would argue, fairly well-discounted), the UK is starting to resemble its erstwhile colony in a number of ways. Dodgy financial institutions? Check. Central bank losing credibility? Check. Inflation a problem? Check- a BOE inflation expectations survey registered its highest print in history (which admittedly is only 8 years), which certainly jives with the cost of living as observed by Macro Man. Housing market looking ropy? Check- the RICS house price balance collapsed to -40.6% in November, way below the expected -28.5%. The recent trend looks like the NAHB, doen't it? Although the trades are to some extent in the price, Macro Man wonders if it isn't worth putting on a series of "USA redux" trades in UK markets in the new year- short the currency, long the front end of the govvy curve, short equities on a spread basis, long vol on the strip. There's no point doing it now given current pricing, but once liquidity conditions appear to improve it might be worth a shot.

The Christmas lunch and dinner circuit is well underway by now, with banks and brokers plying their customers with rich food and expensive claret. It's interesting to observe how the conversation at these occasions tends to drift towards the same topic. This year, it's all about the bifurcation of compensation in financial markets; "star performers" will get paid well enough to ensure that they stay, whereas "squad members" are seen as fungible and as such will be compensated poorly by the standards of the past few years. The upshot is that there is likely to be a good deal of staff turnover, either via redundancies or voluntary churn.

Those left standing when the music stops may be forced to seek an alternative line of work. The problem, of course, is that those of us who entered the market straight out of school are by and large utterly unqualified to do anything but stare at flashing numbers on a computer screen. To aid those unfortunates, particularly in the credit space, who may find themselves out of a job next year, Macro Man is pleased to offer some advice on potential career alternatives:

1) Garbage man: For those who have spent the past few years selling and (more to the point) buying rubbish, a career in the custodial arts may offer the opportunity to leverage one's knowledge of dealing with junk.

2)Stand-up comic: Is your pricing model a joke? Is your P/L so bad that you have to laugh (or else you'll cry)? Take it to the stage and win fame and fortune! After getting roasted by your boss, dealing with hecklers will be a walk in the park.

3) Porn actor: For those whose P/L's have been repeatedly f****d this year, a career in erotic cinema will seem like business as usual.

4) Used yacht salesman: You may not have experience in dealing with tangible assets, but there's likely to be plenty of demand for someone who can shift used yachts at a high price.

5) Barber/stylist: For those in the credit market who've spent most of 2007 dealing with haircuts, this is an obvious career progression.

6) Back-up singer for Dire Straits: A natural role for anyone who's been collecting money for nothing over the past few years.

7) Write a finance blog: After all, if you can think up a snappy introduction every day, you've already gone one better than a knucklehead like Macro Man.

Peter, I suppose it's a combination of noise (90%) and Team America-style optimism after the strong retail sales figs (10%.) If you don't like what you see, just wait a couple of hours, and it'll come your way.

especially as the retails sales does not fit the dynamics of dropping consumer confidence, rising prices.although the revisions might tell a different story, but I still cannot see how the US consumer is going to retrench (and let the ROW take up some of that spending)

think you are right about the UK following the US...personally I think it could be even worse here in this country, as housing went even more unaffordable than the US, and we have an even more incompetent government than the US (although I'm sure many readers not familiar with the UK may struggle to believe it).

The only thing that can stop the housing rut being as bad as the US is that mortgages in the UK are recourse, whereas in the US they are non-recourse. What this means is that in the UK you cannot just send your keys back to the bank to fulfil your mortgage obligation, as the bank can chase you all the way into bankruptcy to get their full amount back. I personally think this is a major detail that is never discussed.

HOWEVER...the UK is going to be a MESS over the next few years, short the currency and the stock markets and you won't go wrong. Oh, and sell your house if you're not too late already.

Oh and yeah, there is going to be a ton of turnover of people in the markets this year...lots of folk "leaving" after bonuses paid (or not) I reckon.

The only thing that can stop the housing rut being as bad as the US is that mortgages in the UK are recourse, whereas in the US they are non-recourse. What this means is that in the UK you cannot just send your keys back to the bank to fulfil your mortgage obligation, as the bank can chase you all the way into bankruptcy to get their full amount back.

And how exactly is this going to make things "less bad" than the US?

Is the income to debt service ratio better in the UK than US? I doubt it.

How many really wealthy-in-still-liquid financial-assets borrowers are there in the U.K. backing up those full-recourse mortgages ?

It seems that this means that the U.K. bankers probably extended even more preposterous loans than in the U.S.

i think it MIGHT make it less bad 'cos people will do anything to pay their mortgage. whereas in the US you'll prob not pay your mortgage whilst still paying your car payments for example. seems to me that buying a house in the US is getting an option for the price of the equity (zero in a lot of cases...) so if prices drop, you are out, and the bank can have the house. that escape clause doesn't exist in the uk.

don't get me wrong though, i think the leverage extended to borrowers in the uk was WORSE than the US, and yes debt service ratios and income/prices ratios are disgusting in the UK.